Yoshida in China: Spreadtrum sees lower profits

There might be no clearer crystal ball offering a vision of what's up and what's next in the Chinese mobile handset market than Spreadtrum Communications' latest financial results.

There might be no clearer crystal ball offering a vision of what’s up and what’s next in the Chinese mobile handset market than Spreadtrum Communications’ latest financial results.

In the second quarter of 2012, Spreadtrum Communications, a Shanghai-based fabless chip vendor specializing in mobile handset chipsets, reported revenue of $173.1 million, a 7.5 percent increase over the first quarter and an 8.1 percent uptick compared to the same period in 2011. The company’s net profit, however, has decreased to $21.0 million, a 13.6 percent drop over the first quarter and a 35.4 percent one-year decline.

Spreadtrum’s latest financial results illustrate what appears to be a robust demand by China Mobile for low-cost TD-SCDMA-based smartphones, while exposing the amazing shrinkage in average selling price for feature phones.

Spreadtrum recorded gross profit for the quarter at $64.2 million, up by $3 million sequentially and down by $3 million year-to-year. Gross margin was 37.1%, down from 38% in the previous quarter and 42% since a year ago.

Looking back on Q2, Leo Li, Spreadtrum’s CEO, claimed that the company achieved a strong volume ramp-up of its 1 GHz TD-SCDMA Edge smartphone chipset. “We shipped more than 1 million units as expected,” he said.

Rattling off names of the company’s OEM customers, including Huawei, Lenovo, Hisense and others, Li noted that they have all completed China Mobile's certification test and launched low-cost smartphones based on Spreadtrum’s products – in the price range between “RMB500 ($79) to RMB700 ($110).”

Clearly, TD-SCDMA smartphones are getting even more affordable and attractive for mass- market consumers in China, but expect more price cuts in the future.

As for Q3, Spreadtrum expects revenue to be in the range of $178 million to $186 million, an increase of 2.8% to 7.5% over the second quarter, “with a flat gross margin relative to Q2,” according to Li.

Spreadtrum's SC8803G, designed with a 40-nm CMOS process technology, enables TD-SCDMA, EDGE, GPRS and GSM operation and supports TD-HSDPA at 2.8Mbps and TD-HSUPA at 2.2Mbps, according to Spreadtrum. “The SC8803G achieves a small modem footprint and can be coupled with third-party application processors to drive high-end smartphone performance,” the company added.